Life Insurance Needs for the New Year
The New Year is upon us. This is the time for making resolutions and setting new goals for this year and into the future. We all know that things do not always work out as planned. As diligent as we are about making our future plans, life often gets in the way. So when we set out our goals for this year, it is important to account for a worst case scenario. It is also important to ensure that our loved ones have enough life insurance to meet their needs even if we are no longer able to provide for them.
How Much Life Insurance Do I Need?
The amount of life insurance to buy is entirely dependent on your individual situation. A large number of Americans have little or no life insurance at all. Therefore, if you fall into this category, the short answer is you most likely need more than you already have.
For an individual that is single with no dependents, the amount of life insurance needed is minimal. You just need enough to pay for final expenses and pay off your debts. It is possible that you already have term insurance through work that covers this amount, in which case you may not need to worry about buying additional insurance.
For those with dependents, it’s an entirely different story. For example, if you are the primary income earner with a spouse and children, then it is imperative to have enough insurance to secure your loved ones’ futures. However, how much is enough?
Here’s a calculation for a working male with a wife and two kids. Assuming one child is 10 years old, the other is 8, you will need enough insurance to cover 10 years of earnings; this is the number of years until your youngest child turns 18. If you earn $50,000 per year, this figure would be $500,000.
In addition, you will want to be sure that your home mortgage is paid off in a worst case scenario. Assuming you have $250,000 remaining to pay on your mortgage, this would bring the amount of life insurance you need up to $750,000.
What Kind of Life Insurance Should I Buy?
The type of life insurance to buy again depends on your individual needs. Taking the example above, you need $750,000 in coverage. This amount is only needed for a limited amount of time. Once your children turn 18 and your home mortgage is paid off, you no longer need to carry this amount. For this reason, many people opt for a 10, 20, or even 30-year term life policy to cover this scenario.
The benefit to term life is affordability; it is significantly less expensive than whole life. The drawback of course is that it is only in force for a set number of years. Once the term runs out or you stop paying on it, the policy is no longer in force. Whole life costs more, but once paid off, is an asset that has cash value and remains with you.
For many people, the solution is some of both. A smaller whole life policy with a value of something like $50,000 can cover final expenses and stay with you into retirement. At the same time, you can have a six-figure term policy that stays in force during your working years.
Whether you choose term, whole or a combination of the two, make it one of your New Year’s resolutions to have enough to take care of your loved ones. If you are unsure how much that is, speak with your local insurance agent to help determine your individual life insurance needs.